Gauteng Municipalities Under Scrutiny Over Audit Failures and Questionable Spending

Virtual Gas Network (VGN) demanded over 200 million rand from the Gauteng Department of Infrastructure Development (GDID) as compensation for damages. This amount was intended to cover lost profits, future losses, and unpaid rent for the gas infrastructure installed in several hospitals.

Although the Gauteng High Court in Johannesburg ruled that the department breached the contract terms, Judge Stuart Wilson did not determine the amount of compensation. He referred the damages claim to a trial, meaning the final cost for the province and ultimately for taxpayers remains unknown.

This financial uncertainty is exacerbated by existing fiscal strain in the province. In March, Lebogang Mabile, the Minister of Finance and Economic Development of Gauteng, noted that the province operates in a 'constrained fiscal environment' and is actively seeking alternative funding sources to meet growing public needs amid a weak economic situation.

The dispute history, which began in 2015

The dispute, which could potentially cost Gauteng's economy millions, dates back more than a decade. In September 2015, GDID signed a contract with VGN to install gas infrastructure, known as 'subsidiary stations,' and supply natural gas to four Gauteng hospitals for a period of three years.

Under the original agreement, the department was obligated to pay for a minimum volume of gas regardless of the actual consumption by the hospitals. The annual volume was slightly less than 410,000 gigajoules. However, a problem arose because the four hospitals used significantly less gas than stipulated in the VGN tender and agreed upon for payment by GDID.

In November 2016, the parties signed an addendum that extended the contract and added six more hospitals. The purpose of this expansion was to increase the healthcare system's ability to use gas by installing gas boilers and subsidiary stations in additional medical facilities. To finance this additional infrastructure, VGN secured 39 million rand from the Industrial Development Corporation.

After this, the relationship began to face payment issues.

Payment defaults and legal action

Court documents indicate that GDID 'regularly defaulted' on its payment obligations, leading VGN to obtain arbitration awards to secure payment. These amounts were subsequently paid.

The dispute that eventually reached the High Court arose after GDID notified the termination of the agreement regarding the six hospitals in January 2023, while simultaneously stating that the agreement for the remaining four had either not expired or had not commenced. Nevertheless, this notification allegedly terminated the entire agreement.

VGN objected to this, arguing that the department had no right to do so, as the agreement was supposed to be valid for five years after the completion of the additional infrastructure in the six hospitals. The company viewed the department's decision as a breach of contract and claimed compensation for the rent of the subsidiary stations, lost past and future profits, as well as interest on the IDC loan.

GDID, however, argued that the contract could only be valid for a maximum of five years after the 2016 addendum and therefore expired in November 2021.

The court's ruling on contract interpretation

Judge Wilson rejected this interpretation, deeming it inconsistent with the wording of the agreement and commercially unviable. He concluded that the purpose of the agreement was to remain in effect for five years after the completion and certification of the last necessary infrastructure in the additional hospitals.

Wilson stated: 'It follows that GDID had no right to terminate the contract when it did, and that its termination notice was essentially a repudiation of the agreement.' Furthermore, GDID had attempted to seek a review and cancellation of its decision to enter into the 2016 addendum. It argued, among other things, that this addendum increased VGN's contract value beyond the 15% variation permitted by National Treasury instructions.

Wilson dismissed this challenge, noting that the Treasury instruction is an internal administrative document, not a law that could support the department's attempt to review its own conduct.

The issue of compensation amount

The judge also established that there was no proof that the addendum increased the contract value beyond the 15% limit. Although VGN claimed an amount exceeding 200 million rand, this ruling does not mean that Gauteng is obliged to pay such an amount.

The central issue lies in the clause of the 2016 addendum, which states that the original 'take-or-pay' scheme no longer applies, and instead, GDID will pay for the gas actually delivered monthly. VGN insisted that this change did not cancel GDID's obligation to purchase a minimum annual volume of gas. Wilson found that the significance of this clause could not be resolved based on the submitted documents and required oral testimony.

Therefore, the court ruled that VGN is in principle entitled to compensation for the breach by GDID, but deferred the determination of the amount to a trial. GDID was also ordered to pay VGN legal costs to date.

Finance Minister Enoch Godongwana reported that 50 out of 71 municipalities participating in the Municipal Debt Reduction Program failed to pay their current bills to the energy company Eskom as of last month.

These affected municipalities owed the energy company a total of R40.5 billion. This debt accumulated during the period they were part of the Municipal Debt Reduction Program, which was launched in 2023.

Godongwana stated that as of August 7, 2026, 50 participants in the Municipal Debt Reduction Program had not met the condition of paying current Eskom bills, despite inconsistently adhering to other provisions of the Municipal Finance Management Act Circular.

His statement was in response to questions from Parliament by DA MP Kevin Vakelin, following the recent declaration by the South African Auditor-General that municipal debt to Eskom reached R119 billion, and 74% of municipalities did not meet the conditions attached to Eskom's debt restructuring agreements.

Vakelin requested information on the National Treasury's assessment of the respective municipalities, the amount of unpaid debt for each municipality, and the specific intervention measures taken. He also wanted to know if any consequence management measures had been taken against municipal officials and political leaders found responsible for non-compliance.

The National Treasury introduced the Municipal Debt Reduction Program three years ago with the aim of improving Eskom's balance sheet and supporting the proposal for municipal debt write-off under strict conditions.

Emalahleni and Emfuleni are the largest debtors to Eskom

In his response, Godongwana specified that the municipalities defaulting on payments are distributed as follows: 11 in North Cape, 10 in Mpumalanga, nine in Free State, nine in North West, four in KwaZulu-Natal, three in Gauteng and Eastern Cape, two in Limpopo, and one in Western Cape.

Godongwana's report showed that the Emalahleni Municipality in Mpumalanga owes Eskom R6.7 billion, followed by Emfuleni in Gauteng with an amount of R4.7 billion. The list also includes Govand Mbeki Municipality in Mpumalanga (R3.3 billion), Mombela Municipality in Mpumalanga (R2.7 billion), Matjambeng in Free State (R2.3 billion), Madibeng Municipality in North West (R2.1 billion), and Matlosaana in North West (R1.9 billion).

Financial mismanagement led to missed payments

Godongwana explained that the 50 municipalities failed to meet the condition of paying current Eskom bills due to a combination of financial mismanagement factors. These factors include the inability to approve cost-reflective tariffs, failing to bill all consumers for rates and all services, the inability to monitor credit and collect due funds, and the inability to collect local taxes and service charges in Eskom supply areas.

He added that some municipalities lack water supply functions or the functionality of existing reservoirs, which hinders restricting water supply in Eskom supply areas for collecting rates and service charges. Furthermore, municipalities are failing to address water and electricity losses, as well as comply with national limits on free basic services.

Godongwana noted that the National Treasury conducts monthly compliance checks, and in case of non-compliance with the Municipal Debt Reduction Program conditions, the relevant Provincial Treasury or National Treasury issues a certificate of non-compliance to the municipality.

Seven municipalities excluded from the program

Warning letters have also been sent to the debtors. Godongwana announced that the National Treasury has begun a phased exclusion process to allow Eskom to control the recovery of municipal debt and ensure growth after persistent defaulters.

The Minister stated that 27 affected municipalities received 'exclusion letters' as an alternative to extending the Municipal Debt Reduction Program through a five-year service agreement with Eskom. This allows them to continue participating in the debt reduction program while ensuring improved payments to Eskom through the Distribution Agency Agreement (DAA). The license remains with the municipalities according to the DAA.

He continued that out of these 27 municipalities, seven were excluded, and another 20 municipal councils committed to undergoing the necessary procedures in accordance with the Electricity Regulation Act before entering into a service agreement with Eskom. Godongwana emphasized: 'No specific consequence management measures have been taken against municipal officials and political leaders in relation to the Municipal Debt Reduction Program.'

Gauteng Education Minister Lebogan Mabile noted the necessity of reviewing school capacity in the province due to the receipt of over 805 thousand applications for 2027, including applications for Grade 1 and Grade 8.

A total of 805,688 applications for Grade 1 and Grade 8 were registered in the Gauteng province for 2027, intensifying the strain on school infrastructure across the region. These applications were submitted by 357,468 parents and guardians on behalf of 346,877 learners before the closure of the Gauteng Department of Education's Online Admissions System at midnight on Friday, September 4th.

The total number of applications included 169,396 submissions for Grade 1 and 177,481 for Grade 8. Mabile emphasized that these figures demonstrate both high demand for public education and a high concentration of applications in specific educational institutions and geographical areas.

Mabile stated that it is impossible to sustain a situation where one public school is overloaded with thousands of applications while another, located just a few kilometers away, has vacant classrooms or declining attendance. He also noted that the province cannot continue expanding schools that are already in high demand.

He explained that a classroom designed for a specific number of students cannot indefinitely accommodate more learners without negatively impacting the learning process, teachers' workload, discipline, safety, infrastructure, and educational outcomes.

At the Grade 8 level, Hoërskool Langenhoven in Tshwane West received 3,462 applications. This was followed by Alberton High School with 2,756 applications and Katlehong Secondary School with 2,747 applications. Katlehong Engineering School Specialization received 2,573 applications, and Parktown Boys High School received 2,448.

For Grade 1, Laerskool Acacia gathered 1,355 applications, followed by Palmridge Primary School with 1,330, Alton Primary School with 1,207, Lakeside Primary School with 1,162, and Stoneridge Primary School with 1,153.

Mabile concluded that this data points to areas of community growth and concentration of parental demand, adding that popular schools cannot indefinitely accept students, and an application itself does not create additional physical capacity.

The province is considering various response measures, including construction, leasing, or renovating facilities, as well as utilizing alternative building technologies. As a short-term measure, temporary and mobile classrooms may be implemented, but Mabile warned that they should not replace long-term infrastructure investments.

He explained that the pressure is caused by population growth, migration, housing development, urbanization, and changing settlement patterns. The department will conduct document verification before forwarding applications to district offices to ensure quality. Allocation will be based on established criteria, including the learner's residential address within the school's service area and proximity to it.

Other criteria include having a sibling in the same school, proximity to the learner's previous school for Grade 8 applications, the parent's place of employment within the service area, and the learner residing within a 30-kilometer radius of the school.

In cases where the selected schools do not have available spots, the department may offer a place in the nearest school with capacity. Parents must provide or upload any missing certified documents by noon on September 11th. Proof of residential address is particularly important as it is part of the allocation criteria.

Applications without valid proof of address or using fraudulent/invalid documents will be considered incomplete and will not receive admission offers. Parents should track their application status on the Online Admissions System. Offers will begin to be sent out on October 15th via SMS to the provided phone numbers. Parents will have seven days to accept the offer.

Mabile stressed that the infrastructure is insufficient to solve the problem and called for an improvement across the entire network of public schools so that parents do not feel the need to compete for a limited number of sought-after institutions. He stated: 'Our goal is to make every public school a school that parents want to choose.' The official admissions system advises parents to apply to up to five schools and to use the 'home' option at least once if the service area covers their address.